How low can the Swiss National Bank go?
The Swiss National Bank has made headlines by being the first major central bank to lower interest rates in recent months. This decision was motivated by inflation falling back into the SNB’s target range.
The Swiss National Bank cut interest rates due to a rapid decrease in inflation, which has returned to its target level. Concurrently, the Employment PMI suggests that the labor market is softening, with unemployment expected to rise. This combination of low inflation and weak economic growth could push the SNB to further ease its monetary policy.
If inflation keeps falling, the SNB could be forced to cut interest rates even more, possibly all the way to zero. This would mean a real interest rate of -0.5%, considering inflation could drop to 0.5%. However, for global fixed-income portfolios, a slightly reduced allocation to Swiss bonds might be advisable, as other central banks may have more room to cut rates, potentially offering greater upside potential.
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